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Treasury announces which burdensome tax regulations will be withdrawn or amended

The Treasury Department announced that it will pull several tax regulations identified as burdensome under President Donald Trump's Executive Order 13789, including the proposed Sec. 2704 regulations that would limit valuation discounts for estate, gift, and generation-skipping transfer tax purposes (Second Report to the President on Identifying and Reducing Tax Regulatory Burdens (Oct. 2, 2017, available at www.treasury.gov). A Treasury press release (available at www.treasury.gov) said the Sec. 2704 regulations (REG-163113-02) "would have hurt family-owned and operated businesses by limiting valuation discounts" and "made it difficult and costly for a family to transfer their businesses to the next generation."

A second regulation identified in the report, and that Treasury subsequently withdrew on Oct. 20, is the proposed regulation under Sec. 103 defining a political subdivision for tax-exempt bond purposes (REG-129067-15). According to Treasury's press release, the added requirements that require showing a governmental purpose and governmental control in order to qualify as a political subdivision "would have been costly and burdensome."

Treasury also plans to pull the Sec. 385 documentation requirements in T.D. 9790 and replace them with streamlined rules. The streamlined documentation rules will be issued in proposed form with a delayed effective date that will allow time for the public to comment and for taxpayers to comply. They will probably modify the rules governing a reasonable expectation of ability to pay indebtedness and treatment of ordinary trade payables. Treasury explained that it presently plans to keep the rest of the Sec. 385 rules while Congress works on tax reform that would address the earnings-stripping and other problems that the Sec. 385 regulations are aimed at.

Treasury also identified two regulations that will be partially withdrawn:

Sec. 7602 final regulations (T.D. 9778) on persons described in Sec. 6103(n) participating in a summons interview: Treasury is considering prohibiting attorneys who are private contractors from assisting in the auditing of taxpayers, including in conducting interviews.

Sec. 752 regulations (T.D. 9788) on partnership recourse liabilities: Treasury believes the temporary regulations should be revoked and the prior regulations reinstated, but it will consider comments on the treatment of bottom-dollar guarantees.

The following regulations may be substantially revised:

Sec. 337(d) temporary regulations (T.D. 9770) on transfers of property to regulated investment companies and real estate investment trusts, which Treasury plans to replace with rules that are significantly more narrow.

Sec. 367 final regulations (T.D. 9803) on transfers of certain property to foreign corporations. These regulations will continue to be implemented while Congress works on tax reform, but Treasury plans to develop exceptions to the regulations.

Sec. 987 regulations (T.D. 9794) on currency gain or loss for a qualified business unit: Treasury is planning to substantially revise these rules and has already announced its intention to amend the regulations to defer their applicability date by one year (Notice 2017-57).

On Aug. 2, 2017, the AICPA Tax Executive Committee recommended to the IRS that four of the above regulations be withdrawn: the Sec. 2704 proposed regulations; the Sec. 385 regulations; the Sec. 987 regulations on qualified business units; and the Sec. 367 regulations.

Treasury also announced that it has started a comprehensive review of all tax regulations, regardless of when they were issued, and had, at the time of its report to the president, identified 200 regulations that potentially could be revoked for being unnecessary, duplicative, or obsolete.

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The package includes final regulations, guidance on how to calculate W-2 wages, a safe-harbor rule for rental real estate businesses, and new proposed rules on the treatment of previously suspended losses.

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